GUARDING AGAINST THE FINANCIAL PITFALLS OF DEATH
is the wisest idea. This is generally called self-insuring because you are responsible for your actions, not a third party.
Transferring the risk, however, means that you have decided that if you get into an accident, you don’t want to be totally respon- sible. You would rather pay someone else to handle the burden. This is where insurance comes in. By transferring the risk, you pay an insurance company to take the risk off your hands. That transfer comes in the form of an insurance policy, whether that be a home- owner’s policy, car insurance, life insurance, or another form. You pay the insurer a premium, and in return, if something happens, the insurer either pays you or, possibly, in the case of a car accident, another party.
Insuring your life means different things at the different stages of your life. Not only do we talk about what types of insurance are out there, we talk about the times in your life when insurance isn’t appro- priate. Throughout this chapter, we discuss four different types of life insurance: term, whole life, universal life, and variable life. Life insurance is very important from an estate-planning point of view, and we talk about that in a subsequent chapter. For now, we deal with life insurance strictly from a protection-planning angle. The case for and against each of these four types of insurance can be made. Hope- fully, though, this chapter will better educate you and make you feel more comfortable about facing some situations that you may not have wanted to talk about in the past.
It used to be that there were three different, traditional types of life insurance: term, whole life, and endowment. However, as time goes by, more and more types of insurance contracts become available to the public. Some types of insurance, like second-to-die policies, serve more as an estate planning tool, rather than a purely protection- oriented asset. When faced with purchasing life insurance, there are two main categories to chose from, with each of the categories hav- ing their own subcategories. The main types of insurance are term, and cash-value or permanent insurance.